Setting financial goals is an effective way to build wealth, provide a sense of direction and purpose, and keep you on track for financial success. It can also motivate and inspire you, as it provides measurable steps to strive for. If you have outstanding high-interest debts, such as credit cards, pay those debts off before saving for other goals. Freeing up money in your monthly cash flow by reducing expenses can help you gain more strength to achieve your goals.
When it comes to saving money for retirement, the earlier you start, the more you'll benefit from the magic of compound interest. Start by taking advantage of an employer-sponsored 401 (k) plan and an employer match. If it's not available to you, there are many other retirement accounts available to support your goal, such as IRAs and annuities. No matter how prepared you are, life can throw unexpected curveballs.
What thinking about the future does is give you the opportunity to analyze the things that could happen and do everything you can to prepare for them. This must be an ongoing process so that you can shape your life and your goals to adapt to the changes that will inevitably come. Experts disagree on whether to pay credit card debt first or to create an emergency fund. Some say you should create an emergency fund even if you still have credit card debt because, without an emergency fund, any unexpected expenses will put you even more in debt.
Others say you must pay off credit card debts first because interest is so expensive that it makes it very difficult to achieve any other financial goal. Choose the philosophy that makes the most sense to you, or do a little bit of both at the same time. If you have a spouse or children who depend on your income, life insurance is essential. Term life insurance is the least complicated and least expensive type of life insurance and will meet the insurance needs of most people.
An insurance broker can help you find the best price on a policy. Most term life insurance requires a medical underwriting, and unless you're seriously ill, you can probably find at least one company that offers you a policy. Disability insurance is also important to protect your income while you work. The biggest long-term financial goal for most people is to save enough money to retire.
The most common rule of thumb is that you should save 10 to 15% of each paycheck in a tax-advantaged retirement account, such as a 401 (k) or 403 (b), if you have access to one, or to a traditional IRA or Roth IRA. However, to make sure you're actually saving enough, you need to calculate how much you'll actually need to retire. For most people who have an employer-sponsored retirement plan, the employer will match a percentage of what they're paid. You can get a 100% return on your investment if you contribute enough for your employer to give you the full contribution, and this is the most important step you should take to fund your retirement.
Michael Cirelli, financial advisor at SAI Financial in Warrenville, Illinois, recommends making contributions to IRAs at the beginning of the year and not at the end, when most people usually do, so that money has more time to grow and have more money to retire with. Whether your target figure is £5,000 or £1,500,000 or more, tracking your progress towards it will help keep things on track. The Money Nuggets Financial Success Planner will help set clear, specific goals that are achievable. Annual financial planning gives you the opportunity to formally review your goals, update them and review your progress since last year.
Once you learn to identify financial goals and have your plan in place, keep in mind that your framework will evolve over time. You probably won't make perfect linear progress towards achieving any of your goals but being consistent with what you can allocate each month gives clear direction on how to move forward. If you have several student loans and won't benefit from their consolidation or refinancing, the avalanche or snowball methods mentioned above can help pay them off faster. These are the goals - from short-term to long-term - that financial experts recommend setting in order to live comfortably within your means; reduce money problems; save for retirement; save for college expenses; cover family costs; and create an emergency fund.
It's important to review your goals at least once a year in order to adjust expectations; chart progress; review priorities; expand emergency funds; and make sure college savings are on track. Having these financial basics gives a solid foundation when pursuing other goals.
